The national Living Wage (‘NLW’) and the national Minimum Wage (‘NMW’) are rates of pay that must be paid, by law, to all employees over school leaving age. The national Living Wage applies to all employees over 23 years of age. The national Minimum Wage applies to all employees of 22 and under, over the school leaving age.
The real Living Wage, in contrast, is a non-legally binding wage that’s based on the cost of living. The real Living Wage is voluntarily paid by almost 9000 employers in the UK. It aims to be a wage that meets employees everyday needs, covering workers’ realistic cost of living. Employers who pay the real Living Wage are deemed to go ‘above and beyond’ for their employees.
The National Minimal Wage Act received Royal Assent on 31st July 1998 and passed into Law under the Labour Government. It took effect on 1st April 1999 and was seen as an implementation of one of the Labour Party’s flagship policies from the 1997 General Election campaign. It sought to introduce a minimum wage across the UK, in an effort to combat poverty.
Upon implementation in 1999, the national Minimal Wage was £3.60 per hour for employees over 22 years of age and £3.00 for those under 22. The national Minimum Wage increased annually on 1st October each year, reaching £6.70 for employees over 21 years of age by October 2015.
On 1st April 2016, the national Living Wage was introduced and applied to all employees over 25 years of age. This age limit has now been reduced to employees over 23 years old. In 2016, the national Living Wage was £7.20 and has seen sustained increase to the figure of £9.50 per hour which will apply from April 2022. The national Living Wage increases annually in April.
The real Living Wage was introduced in April 2016. Employers can voluntarily pay the real Living Wage to their employees.
Why was the real Living Wage introduced?
The real Living Wage is overseen by the Living Wage Commission. The Commission, set up in January 2016, oversees the calculation of living wage rates in the UK. The aim of the Living Wage Commission is to produce realistic, sustainable and robust rates of pay that accurately reflect the cost of living. Rates of pay are calculated both for London, where prices are higher, and the rest of the UK.
How much is the national Living Wage and the real Living Wage?
The national Living Wage is currently £9.50 for employees over 23 years of age.
For employees over school leaving age up to and including 22 years of age, the rate is £9.18 per hour.
The real Living Wage, updated in September 2022 and effective immediately is £11.95 for London and £10.90 for the rest of the UK. It applies across all age bands. The Living Wage Foundation brought forward the normal November rate rise to September in an attempt to combat the effects of the cost of living crisis.
What’s the difference between the national Living Wage and the real Living Wage?
Calculated on the cost of living – the real Living Wage is calculated by an independent body and is based on the cost of living. London weighting is applied because of the extra costs associated with living and working in the capital. In contrast, the national Living Wage is a percentage of average earnings, with no London weighting.
Age – the real Living Wage is a wage for all employees over the age of 18. There are no age bands as with the national Living Wage. The national Living Wage applies only to employees over 23 years of age. Employees of 22 years old and younger do not qualify for the national Living Wage, only the national Minimum Wage, which is lower.
Voluntary - the real Living Wage is voluntary, whereas the national Living Wage is mandated by law. Employers who pay the real Living Wage are seen as going above and beyond the Government minimums. This helps to ensure that their employees are paid a wage that covers the cost of living which improves financial wellness. Financial wellness reduces the risk of employee stress and absenteeism.
Independent – the real Living Wage is calculated using real data on the cost of living in the UK. The rate is updated annually in November. Employers are encouraged to implement the new rates as soon as possible after the rates have been published.
What does the real Living Wage mean for employees?
The Living Wage movement started almost 20 years ago. Organisations such as the Joseph Rowntree Foundation were instrumental in propelling the movement into the public eye. The Living Wage Foundation was created to accredit and recognise employers who pay the real Living Wage. The Living Wage Foundation awards the Living Wage Employer Mark to accredited companies.
They also offer a Service Provider Recognition Scheme for third party contractors. This is awarded to companies who make sure their own staff earn the real Living Wage. Companies must also make sure there is a Living Wage option when submitting tenders.
Since the start of the real Living Wage movement, an extra £1.6 billion has been paid by employers. Since the start of the Covid-19 pandemic in early 2020, £613 million in extra wages has gone to low-paid workers. It is estimated that there are 300,000 employees, across nearly 9000 real Living Wage companies, that will benefit from the increased real Living Wage announced in November 2021.
What does the real Living Wage mean for employers?
Paying the real Living Wage is positive from a reputational and recruitment standpoint. It demonstrates that employers value their employees and support their financial well-being. In 2017, The Living Wage Foundation carried out a survey of member businesses in conjunction with Cardiff Business School. 93% of responders said they had benefitted since becoming real Living Wage employers.
Over 85% of responders said their reputation had been enhanced by being accredited as a real Living Wage employer. They also said their relationship with their employees had improved. 75% of responders recognised an increase in workforce motivation and improved employee retention rates.
Almost 9000 employers are accredited as real Living Wage employers, with over 3000 new businesses becoming accredited in the UK since the start of the Covid-19 pandemic. A list of accredited real Living Wage employers can be found here.
How can PayCaptain help?
Not only is PayCaptain proud to be an accredited real Living Wage employer, but PayCaptain can also help companies who are wishing to sign up to this voluntary payroll movement for the benefitof their employees. Calculations are built into PayCaptain which makes transitioning to a real Living Wage seamless. Businesses can also benefit from automatic updates to employees’ wages by the calculations that are built into the payroll cloud solution. This reduces overhead and administration time for companies wishing to transition.
To learn more about how we can help your business, please contact us for an informal, no obligation chat. We’ll be happy to demo PayCaptain for you and talk about how we can help you build for a better future, both for your employees and your business.
PayCaptain Payroll Solutions Limited, www.paycaptain.com is an HR/FinTech company that delivers a fully automated cloud payroll service. The solution contains many unique and innovative features for employees, helping them to take control of their pay and increase their financial well-being. PayCaptain is a payroll solution that helps employers pay their workforce, regardless of income and personal circumstances. The solution also incorporates functionality that is specifically designed to positively impact financial resilience for people struggling with money, or vulnerable and low-income employees.
